Federal Reserve raises key interest rate


The Federal Reserve increased short-term interest rates for the first time in nearly a decade, raising its benchmark rate 0.25 percent from record lows set after the 2008 financial crisis.

The Fed also indicated that further increases will likely be made slowly as the economy strengthens and inflation rises from undesirably low levels.

Janet Yellen, the Federal Reserve’s chairman, said Wednesday's decision marked “the end of an extraordinary seven-year period” of close to zero interest rates.

“The U.S. economy has shown considerable strength,” Yellen said.

However, she stressed that “the process of raising interest rates is likely to proceed gradually.”

Major U.S. banks also raised their prime rates, a benchmark for consumer and commercial loans, for the first time since 2006 after the announcement.

Banks that include Wells Fargo & Co., JPMorgan Chase & Co. and Bank of America Corp. raised their prime rate to 3.5 percent from 3.25 percent, according to Reuters.

“My guess is that we will see more of this, as margins have been very thin,” Don Parkhurst, senior vice president of marine and RV lending at SunTrust, told Trade Only Today.

However, banks and investors should understand that higher interest rates will not necessarily translate to fast and bigger margins or profits, said Jim Coburn of Coburn and Associates.

A higher prime rate will mean higher interest rates on a wide range of loans that are keyed off the rate, including small business loans and some credit card loans, analysts say.

Lending at slightly higher rates could give a small boost to bank earnings in the coming quarters.

Industry finance experts believe the effects of the rate increase on the marine industry will be nominal.

“Combined with rate increases for the next few years — today’s increase might wave across our economy and bump up rates on most everything: mortgages, bank savings rates, auto loans, corporate bonds and yes, boat/RV loans,” Coburn told Trade Only Today on Wednesday shortly after the announcement.

“However, Fed policy-makers indicated over the past year or so they intend to move gradually — and then in small increments. They also indicated they would pull back if the economy weakens, mitigating some consumer and business impact.”

However, he said a 1 percentage-point increase in the Fed’s benchmark rate during the coming year could “curtail boat industry growth.”

Others saw the rate increase as positive news.

“With this quarter-percent hike, interest rates remain at historic lows while signaling Fed confidence in the strength of the economy,” National Marine Manufacturers Association president Thom Dammrich said. “This is good news. A strong economy is good for sales of boats and recreational boating products and services.”

However, the dollar is expected to continue to strengthen, which could compound challenges for U.S. boat manufacturers seeking to sell products abroad. Conversely, an increasingly strong dollar will make it even more favorable to overseas manufacturers who are seeking to sell their boats in the relatively robust U.S. market, something that U.S. builders have already noted.


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